EY Economic Eye: Growth Uplift for Irish Economy Forecast for 2024 as Inflation Tracks Lower and Interest Rate Cycle Turns

• EY forecasts Irish GDP to rise by 2.2% in 2024 and 3.8% in 2025; Modified Domestic Demand to grow by 2.2% in 2024 and 2.5% in 2025
• Employment forecast to increase by 1.6% in 2024, labour market to remain tight
• Inflation continuing on its downward trend with EY forecasting inflation at 3% for 2024, returning to 2% by 2025
• Northern Ireland economy forecast to grow by 0.7% in 2024, accelerating to 1.6% in 2025

EY Ireland’s Winter 2024 Economic Eye is forecasting a growth uplift for the Irish Economy in 2024, with further job gains as inflation tracks lower and interest rate cycle turns.

After a stellar performance in recent years, economic activity continues to normalise with growth projected to be reasonably solid in the coming years. GDP is forecast to rise by 2.2% in 2024 and 3.8% in 2025 with Modified Domestic Demand growing by 2.2% in 2024 and 2.5% in 2025. Ireland will outperform many economies around the world, exceeding forecasts for our neighbours in the Euro area (0.9% in 2024) and the UK (0.9%) and just above projections for the United States (2.1%).

The labour market is very strong, with record numbers currently in employment. EY projects further jobs growth ahead, with employment expanding by 1.6% in 2024 and 1.8% in 2025. Inflation continues to moderate after the highs of 2022 and early 2023. EY is forecasting this will stand at 3% in 2024. Encouragingly for businesses, exporters and some mortgage holders, interest rate cuts by the European, US and UK Central Banks appear almost certain at some point in 2024.

In Northern Ireland, EY is forecasting that the economy will expand by 0.7% in 2024 and 1.6% in 2025. Employment is projected to stall in 2024, before returning to a more positive trajectory in 2025, growing by 0.9%. Recent political developments including the restoration of power sharing and the installation of a new Stormont Executive offers the opportunity to unlock further growth potential within the Northern Ireland economy.

Dr Loretta O’Sullivan, EY Ireland Chief Economist, says:

“After stellar economic growth in Ireland in 2021 and 2022 and some normalisation in 2023, we are looking at reasonably solid growth in 2024. For Northern Ireland we are forecasting a modest expansion this year.”

“While the international economic environment is still relatively subdued and tighter monetary policy is biting, disinflation is helping to restore households’ purchasing power. Economic momentum is expected to build as the European Central Bank and the Bank of England begin to loosen monetary policy and financing conditions for business investment become more favourable and as trading partner demand improves. With all of this in mind the outlook for 2025 is stronger.

“The Irish economy has many strengths but to keep pace with global markets we also need to cultivate the seeds of future economic growth by training and upskilling our workforce, investing in necessary infrastructure, accelerating the green transition and harnessing the transformative potential of new technologies such as Artificial Intelligence.”

“While there is much to be positive about, a number of global headwinds remain. Geopolitical tensions are high, particularly with the continuing war in Ukraine, the Middle East conflict and the recent attacks on shipping in the Red Sea, which are disrupting global supply chains. With over half of the world’s population eligible to vote in elections in 2024, it is also a year of significant electoral change which brings a level of uncertainty.

Graham Reid, Head of Tax & Law and Clients & Markets at EY Ireland says:

“The Irish economy continues to demonstrate its resilience and underlying strengths, including access to a skilled and highly productive workforce, world-class universities and a business-friendly environment. All of these factors are key in terms of attracting and retaining foreign direct investment as well as enabling and empowering our world-leading indigenous entrepreneurial talent. As we look to the future now is the time to invest in the drivers of tomorrow’s economic growth as we know such investment will pay dividends many times over.”

Inflation on the retreat

Headline inflation has eased significantly in Ireland as the energy price shock triggered by Russia’s invasion of Ukraine and other external pressures has waned. Underlying inflation which excludes food and energy was nonetheless sticky through 2023 and services inflation which reflects domestic price pressures remained elevated as the year ended. The pass through of lower wholesale energy prices to retail prices is continuing and with tighter monetary policy increasingly working its way through the economy, 2024 should see more broad-based disinflation.

Dr O’Sullivan says: “Lower global energy prices and higher interest rates have helped curb inflation and we are projecting that it will retreat further in 2024, easing pressure on hard-pressed households and businesses. We are also getting signals from the European Central Bank that interest rates cuts are on the agenda, although this may occur later in the year than many market watchers have speculated bringing more good news for businesses, households and investors.

Still Warm Labour Market

The two labour markets on the island of Ireland put in a strong performance in 2023. The number of people in employment in Ireland rose to a record high of 2.66 million in Quarter 3, with all regions and most sectors registering gains. Despite layoffs in some high-profile tech companies in recent times, ICT jobs were still up and over 300,000 were employed by IDA client companies for the second year in a row. Jobs are also forecast to have increased in Northern Ireland by 1.5% in 2023.

Dr O’Sullivan says “As developments in the labour market typically lag those in the economy, some cooling is not surprising. But even though jobs growth is forecast to moderate in the Republic of Ireland and stall in Northern Ireland in 2024, unemployment rates are projected to remain low by historical standards. So, recruitment and retention will continue to be an issue for many businesses. For workers, the still tight labour market, along with some compensation for past inflation, as well as the proposed public sector pay agreement, point to further wage increases across the economy.

Northern Irish Economy Picking Up In 2024

After flatlining in 2023, the Northern Irish economy is projected to expand by 0.7% in 2024. Private sector activity has picked up according to the latest Purchasing Managers’ Index while decelerating inflation will provide some respite for households over the coming months. Bank of England interest rate cuts are a real prospect this year, albeit past increases are continuing to have a dampening effect on the economy.

Encouragingly, the unemployment rate in Northern Ireland is very low at 2.4%, although we expect this to nudge higher in 2024.

“While the immediate growth outlook for the Northern Ireland economy is modest, there are grounds for optimism into the medium term. The labour market is resilient, inflation is declining and the recent restoration of power sharing offers the opportunity to unlock the economic potential of Northern Ireland”, Dr O’Sullivan concluded.

Read or download our latest forecast here.